Insurers face capital charge on risky activities - regulators

October 17, 2012|Reuters

* Capital charge targeted at non-insurance activities - IAIS

* "Systemically important" insurers face closer scrutiny -IAIS

LONDON, Oct 17 (Reuters) - Insurers involved in riskyactivities outside their core business, such as derivativestrading, should hold extra capital to limit the danger theymight destabilise the financial system if they go bust, globalregulators said on Wednesday.

The capital charge is one of a set of proposals drawn up bythe International Association of Insurance Supervisors aimed atcurbing the knock-on effects of "systemically important"insurers collapsing.

Insurers whose failure would pose a threat to the widereconomy should also be subject to closer scrutiny by regulators,and should put in place detailed plans for winding themselves down in the event they fail, the IAIS said.

The proposals form part of an effort by the G20 group ofcountries to draw up rules aimed at preventing repeat of the2008 crisis, when close links between financial institutionstriggered a wave of failures, prompting costly governmentbailouts.

Insurers argue they should escape an across-the-boardcapital hike of the kind that has been imposed on banks, arguingthey are less risky because they do not lend and their customerscannot withdraw cash overnight.

Regulators' focus on insurers' non-traditional activitiesstems from heavy losses absorbed by Swiss Re and AIG through credit default swaps which forced both to raiseemergency funding during the 2008 crisis.

The Financial Stability Board, the G20's regulatory taskforce, is expected to publish a list of systemically importantinsurers next year which could include major global players suchas Allianz, Axa and Prudential.